Random OR Non-random Walk?
- Thread starter vision3001
- Start date
I'm not a big fan of random walk hypothesis. I'm a finance major, and basically everything I've taken in University thus far has stated that you can't do much more than diversify away some of your risk. In other words, they basically teach that the stock market is completely unpredictable, and that the stock going up or down the next day essentially boils down to a coin toss.
For example, strong version of efficient market hypothesis basically states that all info about a company is already fully "baked" into the stock price, so don't bother buying it or selling it, because you can't have a clue as to whether or not it will go up.
The above said, I'm much, much more interested in the relatively new field of behavioral finance. I intend to do a lot of reading in this area once I'm finished up my degree, and have already started down that path. I'm not the type to want to get into academic research, but I will certainly read whatever I can find on that topic...
For example, strong version of efficient market hypothesis basically states that all info about a company is already fully "baked" into the stock price, so don't bother buying it or selling it, because you can't have a clue as to whether or not it will go up.
The above said, I'm much, much more interested in the relatively new field of behavioral finance. I intend to do a lot of reading in this area once I'm finished up my degree, and have already started down that path. I'm not the type to want to get into academic research, but I will certainly read whatever I can find on that topic...
The markets are not random... I can't believe they still teach this crap. I guess it works for people who don't want to think.
See this thread for some tests on quantifying randomness.
Quantifying randomness: variance ratio
See this thread for some tests on quantifying randomness.
Quantifying randomness: variance ratio
You gotta love this thread something can be random and still be tradeable.
The efficient market hypothesis is flawed because: If its true then a share price will change only when some new news hits the market. Then the price will jump to the exactly "right" price.
Does this happen in practice, sort of, look at earnings announcements. For the rest of the time why does the price move as much as it does.
To me its pretty random, but random does not mean without structure, that is uniform random.
An Ohrstein-Uhlenbeck process is random but mean reverting. If you can show me a share or financial instrument that consistently mean reverts, you can make a fortune out of it.
The efficient market hypothesis is flawed because: If its true then a share price will change only when some new news hits the market. Then the price will jump to the exactly "right" price.
Does this happen in practice, sort of, look at earnings announcements. For the rest of the time why does the price move as much as it does.
To me its pretty random, but random does not mean without structure, that is uniform random.
An Ohrstein-Uhlenbeck process is random but mean reverting. If you can show me a share or financial instrument that consistently mean reverts, you can make a fortune out of it.
It's random in the long term view.
after a HOT earnings announcement, everyone is expecting it to jump to a certain price level. But does it always reach that expected level? Yes. Sometimes. Other times it overshoot. Other times it undershoot. Other times, it drop instead because as what the media loves to say, "oh, it's sell on news". As you can see, it IS without structure. You can't tell beforehand whether the market is gonna "sell on news" or "bid it up till it overshoot". How would you know what the overall market is thinking?
But in the long run, you will find that the average of all these price reactions is the same as the fair market value according to the announcement information.
Random OR Non-random Walk?
Want to make real money?
Then stop asking silly questions.
Want to make real money?
Then stop asking silly questions.
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As G.Soros said markets have a bias.
Put another way, heve seen few if any random walks in life;
why should i look for that in business/markets???????
cause markets don't walkQuote from murray t turtle:
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As G.Soros said markets have a bias.
Put another way, heve seen few if any random walks in life;
why should i look for that in business/markets???????
If you have ever traded OE days and watched what certain stocks do on that day, then you will witness firsthand that the market is not random.